In the coming year, offshore centres will have to balance privacy and transparency as they adapt to new financial trends, lawyers say.

• Offshore jurisdictions evolving to maintain competitive edge
• Digital assets and ESG reshaping landscapes and opportunities.

As the world becomes increasingly interconnected, offshore financial centres find themselves at a critical juncture. These markets must navigate the delicate balance between privacy protections and growing global demands for transparency and compliance, while maintaining their competitive advantage against growing financial flexibility in onshore financial hubs like Singapore and Dubai. 

According to a panel of attorneys from law firm Ogier, this presents both obstacles and opportunities. "Balancing privacy protections with compliance demands is a complex challenge for offshore jurisdictions, but it also presents opportunities for law firms," explain investment funds partner Dennis Li, investment funds partner and head of ESG (legal) Kate Hodson, and Ogier's global head of Corporate, Nathan Powell. The experts note that whether it's beneficial ownership reporting, data protection compliance, AML requirements, or helping clients structure investments to balance transparency with privacy, there is a growing demand for compliance-related work.

The offshore legal landscape is also being transformed by the rapid growth of digital assets and fintech. Ogier has proactively positioned itself to serve these emerging sectors, expanding its multi-disciplinary technology and Web3 team. "The team brings together experts across our legal practice areas, including funds, corporate and banking and finance," says Li, who recently joined Ogier's investment funds practice in Hong Kong, bringing expertise in establishing cryptocurrency and virtual asset funds. 

The firm is also at the forefront of major contentious matters involving high-profile crypto players, including the liquidation of crypto hedge fund Three Arrows Capital (3AC) and crypto exchange FTX.

ESG FOCUS

Beyond the digital revolution, Environmental, Social, and Governance (ESG) considerations are also becoming increasingly crucial in investment decisions. "ESG fundraising cooled in 2023 amidst a tightening monetary environment. However, the pace of ESG fundraising of private capital has seen a resurgence in 2024, with notable contributions from Europe," Hudson notes. 

The picture is more mixed for the Asia-Pacific market, according to a report by Morningstar Sustainalytics. In early 2024, China-domiciled sustainable funds saw their largest outflows in two years, totalling $1.8 billion. Excluding China and Japan, Asia attracted $2.5 billion in net new money, with Taiwan-domiciled funds receiving the bulk of those investments.

“We predict that we will see the majority focusing on ESG from a governance and risk management perspective and a smaller universe looking at themes such as carbon reduction-focused strategies and impact.” 

• Kate Hodson, Ogier 

Given these overall fund flows, Hodson expects investment managers in the region to continue to be mindful of investor interests and demands when it comes to ESG and sustainability. 

“We predict that we will see the majority focusing on ESG from a governance and risk management perspective and a smaller universe looking at themes such as carbon reduction-focused strategies and impact,” she adds. 

While offshore jurisdictions have not yet introduced additional layers of ESG-focused regulation, Hodson notes that "funds domiciled in these locations will generally be managed out of an 'onshore' jurisdiction and therefore the managers may already need to comply with ESG and/or climate-related regulation in those jurisdictions." 

The Cayman Islands Monetary Authority has also demonstrated its focus on this area, issuing  Climate Change and Environmental-Related Risks survey to better understand the current landscape of climate-related risk management processes within Cayman registered funds and other entities.

Offshore jurisdictions are also witnessing an increase in takeover activity, particularly in the form of take privates of Hong Kong-listed Cayman companies. "These takeovers are often structured as Cayman schemes of arrangement," explains Powell, who notes that recent regulatory changes, such as the abolition of the Cayman statutory "headcount test," have eased the process for these transactions, a development that has been widely welcomed by the market.

COMPETITIVE ADVANTAGE

As onshore jurisdictions like Singapore and Dubai enhance their financial centre capabilities, traditional offshore centres are evolving their value proposition. "Offshore jurisdictions are enhancing their regulatory frameworks to be more robust and transparent, aligning with international standards while maintaining the flexibility and efficiency that has made them so successful," the Ogier team asserts. 

As they implement iterative regulatory updates, these jurisdictions are able to stay ahead of the curve and provide market participants with the necessary guidance to navigate the evolving landscape. "For the most part, we are not seeing regulatory changes causing any material disruption and, generally, not having material cost implications," the Ogier team notes.

In terms of competitive advantages, offshore centres have developed an enormous amount of expertise in niche areas, such as private wealth management and trusts, the experts say. “They are also extremely agile and can quickly adapt to meet evolving clients' needs, which is what we're seeing in the digital assets space,” the Ogier team says. 

"Going into 2025, the political and regulatory stability they offer, along with the flexibility and complex structuring expertise, will ensure offshore jurisdictions can continue to attract and retain global investors and remain competitive," the lawyers add.